Are You in a Foxhole?
by R. Thomas Stocker
These are scary times for everyone. companies. The market reality is that buyers
Business owners, individuals and who do have the funding available to do
corporations. There is a constant stream of deals are not willing to pay last year’s
advice about how to control your working multiples and are very picky about the
capital and overall cash flow. All of it is health and structure of their target
prudent. We are being deluged with so acquisitions. Their advice? If you are not a
much bad news, how could you not be top-notch company or don’t need to sell,
influenced? You really can’t. But you need don’t sell right now. Spend the time to
to continue to move forward. Stopping now make your company more valuable. But
will make your situation worse (if it is bad at what if you aren’t planning to sell your
all). Obviously a few sectors are in very bad company right now? My advice is the same.
shape. Retail, consumer goods and real Regardless of your personal timeline for an
estate to be specific, but how about your exit (we all have to go sometime right?) part
industry? I’m not sure who (perhaps of your strategic plan has to be to work
Warren Buffett or Winston Churchill?) first toward making your company stronger,
said “out of carnage will come opportunity”. sustainable and transferable. And now is a
Poke your head out of the foxhole for a perfect time. By many accounts, business is
minute. And if I’m successful in my down. But instead of just waiting it out, do
argument, you will keep it out without the things you need for growth and to
getting it taken off. structurally support that growth.
Now is the time to be prudent. But it is also Talk to your customers. Find out what you
a time of great opportunity to get your can do to increase your value to them. Let
business in a much stronger position. First, them know you are confident, not only with
pull out your strategic business plan. Don’t survival but your growth prospects
have one? Pull out your pencil instead (remember your strategic plan). But be
because you need a plan. Start with the careful. Have you had the good fortune of
thought of “this too shall pass”. How has having a customer make some unusually
the current economic situation affected your large orders? That may not be as good as
plan? Your growth time line may need you think. Perhaps they are in trouble and
adjustment, that is for sure. But other than are looking for a way to increase their
that, the current economic condition should revenue at your expense. Proceed with
not have a major affect on your underlying caution. But what can you do to help your
long-term strategy. However, you may want customers? Has your relationship changed
to take advantage of the current situation. with the current economic climate?
Remember, their long-term plans shouldn’t
From a market perspective, merger & have changed either. What can you do to
acquisition firms are indicating that new help?
deals are starting to get harder to close.
Many selling companies still have high How about your competitors? Are they
expectations for the value of their hunkered down? Great! Go talk to their
10 Larkspur Road, East Greenwich, RI 02818 401-451-9799 www.boardroomadvisorygroup.com
customers. Now is a great time to take strategy. If everyone along the supply chain
share. Not sure? Your sales force should be were to stretch payables out the situation
in tune with the market. Watch and interpret will only be exacerbated.
that intelligence carefully, but be aggressive.
Most likely you have already assessed and
Your competitor’s customers may be
adjusted your current capital needs. The
looking for help if your competitor is not
reality is banks can be and are more picky
able to deliver. Why not be the one to
about who they will lend to and for what.
You must have a historical performance
How is your team? By now you should track record to be credible. It is a buyer’s
have done your reduction in force. How is market for them as well. They need to be
moral? If you have had to lay people off, comfortable they will be paid back.
hopefully you are not doing it in waves. Communications are more important than
Each wave will spook those who are left, ever, regardless of your situation.
causing moral and productivity to plummet Understand they want to help and will if you
further. How can one focus if they are are credible.
worried they may be next?
If things are not going the way you
Do you have the right players to execute promised, get that strategic plan in shape.
your plan? Unfortunately sometimes teams Bankers (like investors) don’t like surprises.
need to change. This is always a very hard If you are in trouble and don’t have a
decision, but different times sometimes take relationship with your banker, have a plan
different skills. Although your loyalty to before you initiate that communication.
your people is a virtue, is the team that got Bring your Chairman or other advisors in to
you where you are keeping you there? Now help, the earlier the better. Your banker will
is a good time to act. With the current be more likely to help you if you show you
buyer’s market there is a significant amount are being proactive.
of top talent available right now. Keep
The message from banks is incredibly
similar to the message from M&A firms.
Are you taking care of your suppliers? If Solid historic growth, profit performance
you haven’t stretched your payables out, are and strong credible leadership are a few of
they calling you more frequently? That may the top attributes of a valuable company. A
be a sign things are not well. You should solid strategic plan and good execution of
investigate to find out why (the obvious that plan add to that value. They all agree
answer of the current conditions is not now is an opportune time to be working on
acceptable if you haven’t changed your those plans in order to position yourself for
payment habit). You may want to find an superior growth and maximize company
alternative just in case. Having sole-source value.
suppliers is a risky strategy, especially now.
Foxholes are prudent when you are under
Keep an especially sharp eye on them for
attack and can seem comfortable in dire
any market stress and have a plan in case
circumstances. But use the time wisely and
they interrupt the supply of goods you need.
be sure you can see around you. At the end
If you are stretching your suppliers, of the day your strategic plan will need to be
remember they may be keeping an eye on adjusted to reflect the realities in the market.
you as well. A better method may be to But be stingy with wholesale changes that
assess your inventory needs and decrease may be knee-jerk reactions to the current
your orders. Whatever you do, work with economics. Opportunity is what you make
them. Keep them in your discussions and of it. If you assume your competitor is